Sitharaman rolls out credit guarantee scheme, increases Mudra loan limit from Rs 10 lakh to Rs 20 lakh
The Mudra loan limit is increased from Rs 10 lakh to Rs 20 lakh for those who have previously availed and repaid the loan. Image: Debajyoti Chakraborty/NurPhoto via Getty Images
Finance Minister Nirmala Sitharaman has announced financial and regulatory changes aimed at the growth of micro, small, and medium enterprises (MSMEs). The new schemes and regulations include a credit guarantee scheme, new assessment models, ecommerce facilitation hubs, and quality testing centres.
In the credit guarantee scheme, MSMEs can get term loans for investments in machinery without any collateral or third-party guarantee. The finance minister said the scheme will operate on the pooling of credit risks of such MSMEs. A separately constituted self-financing guarantee fund will provide each applicant with a guarantee covering up to Rs 100 crore, while the loan amount may be larger.
Additionally, the finance minister announced stress period credit support for MSMEs. This provision will allow MSMEs to get continued credit from the bank during the stress period. A government-promoted guarantee fund supports credit availability for MSMEs. Further, the Mudra loan limit is increased from Rs 10 lakh to Rs 20 lakh for those who have previously availed and repaid the loan.
"The announcement of the credit guarantee scheme for loans up to Rs 100 crore for MSMEs can provide a much-needed boost for the manufacturers. We will need to wait for further details and clarifications to understand its scope and applicability, but it has the potential to unlock a flurry of investment into machinery and capital equipment,” says Mayank Dalmia, co-founder of Wave Mechanics.
Another major announcement for MSMEs is the in-house credit assessment by the public banks. Based on the digital footprints of an MSME, public banks can now develop their assessment for lending instead of relying on external assessment, which was primarily based on assets and turnover criteria. The move is likely to help smaller MSMEs that do not have a formal accounting system.